Trump's Tax Plan To Aid Tech Firms, Increase Debt Load For US
Zacks Investment Research | Oct 30, 2017 12:30AM ET
The Senate has finally passed the budget blueprint for fiscal 2018, ironing out difficulties in the path of President Trump’s historic tax reform plan. Trump believes that such an opportunity to benefit the middle class by slashing corporate tax rates comes once in a lifetime. Markets rallied after this development as investors believe that a tax cut will boost the U.S. economy over the long term.
Tax Reforms to Boost GDP
The latest report from Trump’s Council of Economic Advisers (CEA) reveals that the new tax plan will drive the economy to new heights. According to the report, a cut in the corporate tax rate from 35% to 20% will lift the annual GDP growth rate to as high as 5%; the projected range lies between 3% and 5%.
As per Business Insider, the U.S. GDP growth rate was 7.4% in 1984, after which it never touched 5%. In fact, since 1980, the rate crossed the 4.5% mark only thrice. It should be noted that with a lower corporate tax rate, companies will accumulate more disposable income to invest in the domestic market and thereby create more jobs. This will pave the way for further economic growth.
Tech & Bank Bigwigs Set to Gain
According to Moody's, as much as $1.3 trillion in cash has been stored by U.S. firms overseas in order to avoid paying the stiff corporate tax rate. The five top cash hoarders in the country — Apple Inc. (NASDAQ:AAPL) , Microsoft Corp. (NASDAQ:MSFT) , Alphabet (NASDAQ:GOOGL) Inc. (NASDAQ:GOOG) , Cisco Systems (NASDAQ:CSCO), Inc and Oracle Corp. (NYSE:ORCL) — have stockpiled 88% of their cash outside the country, notes CNNMoney. A cut in rates will encourage these companies to repatriate cash, boosting the U.S. economy substantially.
Banks also bear a huge tax burden. Among all the sectors representing the S&P 1500 index, financials contribute 25% of tax liabilities, per KBW Research. The investment banking firm believes that the tax rate cut will help Bank of America Corp. (NYSE:BAC) , JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) boost their earnings by 20%.
Per Howard Silverblatt of S&P Dow Jones Indices, the consumer staples sector paid the second highest taxes in the S&P 500 index last year — at a rate of 29.1%. Thus, lower taxes will massively benefit consumer staples companies like Tyson Foods, Inc. (NYSE:TSN) , Unilever PLC (NYSE:UN) and Sysco Corp. (NYSE:SYY) . Tyson Foods sports a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research
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